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2 in 5 U.S. credit card holders have topped out their spending limit, report finds
Inflation may be cooling, but when it comes to credit card debt more than a third of cardholders are finding themselves in hot water.
Roughly 2 in 5 credit cardholders, or 37%, have either maxed out a credit card or come close to doing so since the Federal Reserve began hiking interest rates in March 2022, according to a new online survey of 3,576 U.S. adults by personal finance firm Bankrate.
Lower-income earners, older people and families those with children under the age of 18 are more likely to say they’ve reached their credit spending limit since the central bank started raising its benchmark rate, the survey found. Of those respondents, 54% point to inflation as the main reason why they’ve tapped out a card, while 38% cite emergency expenses, 25% cite job or income loss, and 22% point to medical costs.
Credit card debt has risen to alarming heights since 2022, as soaring costs in food, housing and auto rates have resulted in many Americans becoming more reliant on plastic simply to make ends meet. Nationwide, consumers collectively owed $1.1 trillion in credit card debt as of the second quarter of 2024, up $27 billion from the previous quarter.
“Inflation does not care if you are rich or poor. Everyone can feel its wrath,” Bankrate analyst Sarah Foster said in the report, published Thursday. “With limited options to absorb those higher costs, many low-income Americans have had no choice but to take on debt to afford costlier essentials — at a time when credit card rates are near record highs,”
Exorbitant APRs
Credit card annual percentage rates surged as the Fed jacked up interest rates in order to quash inflation, making delinquency extremely costly for cardholders. The average APR is now a whopping 24.72%, according to Lending Tree.
And though the Fed recently lowered its benchmark rate by 0.50 percentage points, the impact of the cut on APRs “will probably only save the average credit card debtor a couple of dollars per month off their bill,” LendingTree credit analyst Matt Schulz told CBS MoneyWatch in September.
Consumers who have topped out their credit cards over the last two years are more likely to fall into delinquency, Bankrate found. More than half of such cardholders, or 59%, said they have missed at least one monthly payment on a bill since the beginning of 2024. Credit cards were the most common monthly expense that went unpaid, at 35%, according to the survey.
Credit card delinquencies have soared more than 50% in the past year, according to an August report from the Federal Reserve Bank of New York. About 6.4% of all accounts are now 90 days past due, up from 4% at the end of 2022.
“Being maxed out doesn’t just have ramifications for someone’s personal finances, but it can be a headwind for the economy, too,” said Foster, adding that Americans could find themselves tapped out of credit ahead of the holiday shopping season. “If Americans have already been struggling to keep up with their bills, rising unemployment and weaker job growth could make that picture even worse.”
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Social Security Fairness Act clears key Senate hurdle, heads to final vote
Legislation to expand Social Security benefits to millions of Americans cleared a key hurdle in the U.S. Senate on Wednesday afternoon and is now headed toward a final vote.
Senators voted 73-27 to approve a motion to proceed with consideration of the Social Security Fairness Act, according to an unofficial Senate tally shown in a webcast on the floor of the chamber.
“We will vote on taking up the Social Security Fairness Act to repeal flawed policies that eat away at the benefits of those who’ve worked as teachers, firefighters, postal workers, or public sector workers,” Senate Majority Leader Chuck Schumer said on social media shortly before the procedural vote. “Retirees deprived of their hard-earned benefits will be watching closely.”
The New York Democrat has pushed to bring the measure up for a full vote, which would eliminate two federal policies that prevent million of Americans, including police officers, firefighters, postal workers, teachers and others with a public pension from collecting their full Social Security benefits.
“Social Security is a bedrock of our middle class. You pay into it for 40 quarters, you earned it, it should be there when you retire,” Ohio Senator Sherrod Brown, a Democrat who lost his seat in the November election, told the chamber ahead of Wednesday’s vote. “All these workers are asking for is for what they earned.”
Sen. Thom Tillis spoke against measure, saying that while a small percentage of people are not getting what they should from Social Security, enacting what he framed as an unfunded government mandate that would increase the federal deficit “is not the way to fix it.”
“This bill will take $200 billion during the 10-year period out of the Social Security trust fund without any way to pay for it,” the North Carolina Republican added.
What is the Social Security Fairness Act?
Decades in the making, the Social Security Fairness Act would repeal two federal policies — the Windfall Elimination Provision (WEP) and the Government Pension Offset (GPO) — that broadly reduce payments to nearly 3 million retirees.
That includes those who also collect pensions from state and federal jobs that aren’t covered by Social Security, including teachers, police officers and U.S. postal workers. The bill would also end a second provision that reduces Social Security benefits for those workers’ surviving spouses and family members. The WEP impacts about 2 million Social Security beneficiaries and the GPO nearly 800,000 retirees.
“This stuff takes time, but 21 years is ridiculous,” said Brown of the process. The Senate held its first hearings into the policies in 2003.
The measure, which passed the House in November, had 62 cosponsors when it was introduced in the Senate last year. Yet the bill’s bipartisan support eroded some in recent days, with some Republican lawmakers voicing doubts due to its cost. According to the Congressional Budget Office, the proposed legislation would add a projected $195 billion to federal deficits over a decade.
At least one GOP senator who signed onto similar legislation last year, Sen. Mike Braun of Indiana, said he was still “weighing” whether to vote for the bill. “Nothing ever gets paid for, so it’s further indebtedness, I don’t know,” Braun said last week, the Associated Press reported.
“In the end it’s going to come down to individual members are going to make their own decisions about where they want to come down on that,” incoming Republican leader John Thune said at a press conference Tuesday. “Obviously I am concerned about the long-term solvency of Social Security and that is an issue I think we need to address.”
Without Senate approval, the bill’s fate would end with the current session of Congress, and would need to be re-introduced in the next Congress.
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